The Beat

POSTED BY akatkin ON May 16, 2011

John Riccitiello to Grads: When You Fail, Fail Well

Earlier today, EA’s CEO John Riccitiello gave the commencement speech at the University of California’s prestigious Haas School of Business. Normally such an event is the occasion for effusive congratulations and bright-eyed speculation about the opportunities to come, but the audience today was treated to a somewhat different message: one about failure.

As Riccitiello explained to the assembled graduates, we will all fail at some point. It’s inevitable and unavoidable. It happens to everyone. What distinguishes a person – or a company – is not the failure itself but rather the reaction to that failure. It’s about how you pick yourself up and get back into the game. By failing well, you can provide the foundation for a bigger win.

Over the past years Electronic Arts has fundamentally changed how it creates, markets and publishes its games and in the process we’ve dramatically increased game quality. We believe we’ve learned from our failures and come away smarter, stronger, more focused and more in touch with our consumers. We hope you agree.

A video of John's speech is available on the website of the Haas School of Business. The full text of the speech follows.

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THANK YOU DEAN LYONS.

GOOD MORNING.  THIS IS A BIG DAY FOR EVERYONE HERE.

FOR GRADUATES, YOU’RE OFF TO MAKE YOUR MARK IN BUSINESS.

FOR FACULTY, YOU’VE PREPARED THEM WELL.

FOR PARENTS, YOU’VE GOT TO BE PROUD.

AND FOR ME, I’M JUST GRATEFUL THAT WHEN YOU START EARNING GOOD SALARIES, YOU’LL QUIT DOWNLOADING FROM PIRATE SITES AND START PAYING FOR GAMES!

THIS IS UNDOUBTEDLY ONE OF THE MOST OPTIMISTIC DAYS OF YOUR LIVES.  YOU’VE WORKED HARD, YOU’VE EARNED THE DEGREE, AND NOW YOU ARE ON THE DOORSTEP OF A GREAT LIFE, LOOKING FORWARD TO YOUR FUTURE SUCCESS.

WITH THIS IN MIND, WHAT BETTER TOPIC COULD I PICK TO TALK ABOUT, THAN, WELL . . . FAILURE.

YEP, I’M GOING TO STAND UP HERE AND SPEND THE FIRST FEW MINUTES OF THE REST OF YOUR LIFE ASSURING YOU THAT YOU WILL FAIL.

AND YOU WILL. 

THAT IS, IF YOU WANT TO SUCCEED IN ANY WAY THAT REALLY MATTERS.

 I WANT TO FORESHADOW SOME THINGS YOU SHOULD PREPARE FOR….RELAY SOME OF MY OWN EXPERIENCES SINCE GRADUATING FROM HAAS……AND FINALLY, I WANT TO UNDERSCORE THE VALUE AND ENDURING WISDOM OF A COUPLE OF THE HAAS SCHOOL PRINCPLES.

I REMIND MYSELF OF THESE PRINCIPLES ALL THE TIME: QUESTION THE STATUS QUO…..CONFIDENCE WITHOUT ATTITUTE…..STUDENTS ALWAYS…..BEYOND YOURSELF.

I AM SURE YOU THINK YOU UNDERSTAND THESE PRINCIPALS NOW.  BUT IN MANY WAYS, THESE PRINCIPALS HAVE NOT BEEN TESTED.  OR, WORSE YET THESE PRINCIPALS MAY JUST BE GUIDEPOSTS FOR YOU WHILE YOU ARE AT HAAS…. AND NOT BEYOND.

BUT TRUST ME ON THIS – NO MATTER HOW MUCH CONFIDENCE AND MOMENTUM YOU HAVE TODAY, AND HOW MANY GREAT IDEAS YOU HAVE FOR STARTING COMPANIES… FOR CREATING WEALTH…. THERE WILL COME A TIME WHEN YOU WILL NEED TO REALLY THINK DEEPLY ABOUT THESE PRINCIPLES. 

MY TALK TODAY . . . ABOUT FAILURE . . . REALLY ZEROS-IN ON TWO OF THESE PRINCIPLES: CONFIDENCE WITHOUT ATTITUDE, AND STUDENTS ALWAYS.   IN THE CONTEXT OF FAILURE, “CONFIDENCE WITHOUT ATTITUDE” IS CRITICAL IN HOW YOU FAIL.  AND “STUDENTS ALWAYS” DEALS WITH WHAT YOU DO WITH A FAILURE – HOW YOU USE IT AS A FOUNDATION FOR A BIGGER WIN.

SO LET’S GET STARTED . . .

A FEW YEARS AGO – I GAVE A COMMENCEMENT ADDRESS TO A CLASS OF EIGHTH GRADERS.

(I SHOULD STOP HERE AND POINT OUT THAT SO FAR, YOU HAVE ALL BEEN MUCH MORE POLITE AND ATTENTIVE THAN THEY WERE…..BUT LET’S SEE HOW IT GOES.)

I TOLD THE EIGHTH GRADERS THAT THEIR LIVES WOULD BE MARKED BY HIGHS AND LOWS.  THERE WOULD BE TIMES OF GREAT FUN AND FULFILLMENT, BUT SOONER OR LATER, THEY WOULD EXPERIENCE A SETBACK.  A FAILURE.  EVERYONE DOES.   EVERYONE FALLS DOWN.  EVERYONE LOSES A GAME OR GETS A BAD GRADE.  WE ALL FAIL TO MAKE THE TEAM.  EVERYONE MESSES UP SOMETHING.  EVERYONE.

I TOLD THEM THAT WHEN IT HAPPENS, THEY SHOULD TRY AND FAIL WELL.  WHAT MATTERS ISN’T THE FAILURE ITSELF, IT’S HOW YOU DEAL WITH IT WHILE IT’S HAPPENING AND WHEN IT’S DONE. HOW YOU PICK YOURSELF UP..… AND GET BACK IN THE GAME.  FAILING WELL MATTERS BECAUSE IT WILL ULTIMATELY DEFINE YOUR REPUTATION …..AND FRANKLY HOW YOU SEE YOURSELF.

I COULD END THIS SPEECH RIGHT HERE… A SPEECH IN A FORTUNE COOKIE, “FAIL WELL”

……BUT LET ME OFFER A COUPLE OF EXAMPLES FROM THE ADULT WORLD THAT ILLUSTRATE THE POINT.

I’LL START WITH SOME HISTORY. 

HARRY S. TRUMAN ONCE OWNED AND RAN A MENS CLOTHING STORE IN ST. LOUIS, MISSOURI.  IT WAS A SIMPLE SMALL BUSINESS AND TRUMAN AND HIS PARTNER WORKED HARD TO MAKE IT A SUCCESS.

BUT IT WASN’T A SUCCESS.  AT AGE 38, TRUMAN FAILED.  THE CLOTHING STORE WENT BANKRUPT AND TRUMAN WAS FORCED TO PAY OFF HIS DEBTS AND MAKE A CAREER CHANGE. 

TWELVE YEARS LATER…………HE WAS ELECTED TO THE U.S. SENATE.

AND AT AGE 61 – 23 YEARS AFTER HE UTTERLY FAILED AS A CLOTHING SALESMAN – HARRY TRUMAN WAS SWORN IN AS PRESIDENT OF THE UNITED STATES.

BANKRUPTCY DID NOT SHATTER TRUMAN’S EGO.  HE HAD ENOUGH CONFIDENCE AFTER FAILING IN BUSINESS TO CLIMB BACK INTO ONE OF THE MOST BRUISING OF CAREER PATHS.  THE BASE OF TRUMAN’S POLITICAL REPUTATION WAS THE STRENGTH OF HIS CHARACTER, HIS CONFIDENCE IN THE AMERICAN DREAM AND HIS IDENTIFICATION WITH THE COMMON MAN.  TRUMAN EMBODIED CONFIDENCE WITHOUT ATTITUDE – AND VOTERS RESPECTED HIM FOR IT

THAT WAS 70 YEARS AGO.  LET ME GIVE YOU A MORE CONTEMPORARY EXAMPLE.

IN 1997, STEVE JOBS RETURNED AS CEO TO APPLE.  TWELVE YEARS EARLIER, HE HAD BEEN FORCED OUT BY A MANAGEMENT TEAM THAT WAS TOTALLY INEPT AT CREATING THE COMPUTERS, CONSUMER ELECTRONICS AND SOFTWARE CONSUMERS WANTED TO BUY.

WALL STREET WASN’T IMPRESSED WITH STEVE’S RETURN.  APPLE WAS IN A SORRY STATE.  BETWEEN 1997 AND 2002, WHILE STEVE JOBS AND HIS TEAM BUILT A TEN-YEAR PLAN FOR A COMPREHENSIVE TRANSFORMATION OF THE TECHNOLOGY AND ENTERTAINMENT INDUSTRIES, APPLE’S STOCK MARKET PERFORMANCE WAS STAGNANT. 

THERE WAS NO CHART WITH HOCKEY-STICK CURVES TRACKING REVENUE AND PROFITABILITY.  IN 2001, APPLE STOCK WAS TRADING FOR LESS THAN $8.  YOU COULD HAVE BOUGHT THE ENTIRE COMPANY FOR THE AMOUNT THEY HELD IN CASH.

BUT WE ALL KNOW WHAT HAPPENED NEXT. 

WHAT I FIND INTERESTING ABOUT STEVE AND HIS LEADERSHIP TEAM IS NOT HOW THEY CREATED THAT SUCCESS……BUT HOW THEY HANDLED THEMSELVES IN THAT PERIOD WHEN EVERYONE SAID APPLE COULDN’T DO ANYTHING RIGHT…..WHEN EVERYONE THOUGHT APPLE WAS DEAD.

FOR A VERY LONG TIME, THAT APPLE TEAM RAN ON FAITH.  THEY STUCK TO THEIR BELIEFS.  THEY HAD, AND HELD, FAITH….WHEN FAITH WAS ALL THEY HAD.

IN THE WORDS OF THE HAAS PRINCIPLES, THEY HAD CONFIDENCE WITHOUT ATTITUDE.  APPLE’S ROUGH TIMES DIDN’T SHAKE THE CONFIDENCE OF JOBS AND HIS TEAM.   THEY DIDN’T PROCLAIM THEIR FUTURE SUCCESS, EITHER.  THEY KNEW THAT AFTER A PERIOD OF FAILURE, THEY HAD TO DEMONSTRATE THEIR EVENTUAL SUCCESS, EARNING STEVE JOBS A REPUTATION FOR CREDIBILITY ALONG WITH THE INNOVATION THAT APPLE HAS BECOME FAMOUS FOR.

SADLY, NOT MANY COMPANIES RECOVER LIKE APPLE.  THE PATTERN RECOGNITION ON CORPORATE TURN-AROUNDS – PARTICULARLY THOSE IN SILICON VALLEY AND ESPECIALLY THOSE IN THE ENTERTAINMENT FIELD WHERE I WORK -- REVEALS THAT PRECIOUS FEW MAKE IT.

JOHN CHAMBERS UNDERSTANDS FAILURE – AND HOW TO USE THE LESSONS OF FAILURE TO SUCCEED ON THE NEXT TRY. 

JOHN RAN WANG LABS IN THE 1980S, WHEN THAT COMPANY BUILT UP MARKET SHARE IN PC’S AND OFFICE EQUIPMENT AND THEN THEY STOPPED INNOVATING AND WENT INTO A SPIRAL.  AS THE BUSINESS DECLINED, JOHN WAS FORCED TO LAY OFF 5,000 PEOPLE. 

FOR WANG, THERE WAS NO TURNAROUND – NO HAPPY ENDING.  CHAMBERS LEFT IN 1990 AND THE COMPANY WAS LATER SOLD.

I CAN IMAGINE WHAT A PAINFUL AND HUMBLING EXPERIENCE JOHN WENT THROUGH.  FOR MANY EXECUTIVES – THAT WOULD HAVE BEEN THE END THE LINE.  TIME TO NEGOTIATE A SEVERENCE, WRITE A BOOK BLAMING SOMEONE ELSE, AND SPEND THE REST OF YOUR LIFE GOLFING.

BUT THAT WASN’T HOW CHAMBERS HANDLED DEFEAT.  HE DIDN’T HAVE THE KIND OF ATTITUDE – THE KIND OF EGO -- THAT FORCED HIM TO DROP OUT AND HIDE WHEN HE WAS STUNG WITH A LOSS. 

INSTEAD, HE LEARNED FROM IT.  CHAMBERS BECAME A STUDENT OF HIS WANG EXPERIENCE, AND USED THOSE PAINFUL LESSONS TO CREATE A NEW MANAGEMENT PHILOSOPHY.  AN EXCELLENT EXAMPLE OF THE HAAS PRINCIPLE: STUDENTS ALWAYS.

HE PUT WHAT HE LEARNED AT WANG INTO PRACTICE AS CEO OF CISCO, WHERE HE NOW MANAGES 70,000 EMPLOYEES AND 40 BILLION DOLLARS IN ANNUAL REVENUE.

THOSE OF YOU WHO FOLLOW MY COMPANY, ELECTRONIC ARTS, PROBABLY KNOW WHERE I’M HEADED WITH THIS.  LIKE EVERYONE ELSE WHO’S HAD A LONG BUSINESS CAREER, I’VE HAD FIRST-HAND EXPERIENCE WITH FAILURE – AND I’VE HAD THE OPPORTUNITY TO LEARN AND RECOVER FROM IT.

I LIKE THE APPLE STORY MORE THAN I LIKE WHAT HAPPENED AT WANG.  BUT I’M MINDFUL OF THE JOURNEY THAT THE TWO CEO’S MADE – HOW THEY HANDLED SETBACKS, CRITICISM, AND SOME PAINFULLY LONG YEARS OF DOUBT.

NOT THAT MANY YEARS AGO, IN THE LATE 1990’S AND EARLY 2000’S, EA WAS BY FAR THE MOST SUCCESSFUL COMPANY IN THE GAME MARKET.

WE WERE PARTICULARLY STRONG ON THE CONSOLE PLATFORM THAT WAS THE LEADER OF THE DAY – THE PLAYSTATION 2.  THIS WAS A TIME BEFORE ANYONE HAD EVEN DREAMED OF THE NINTENDO Wii AND STEVE WAS STILL DENYING APPLE HAD ANY INTEREST IN MAKING A SMART PHONE.  MARK ZUCKERBERG WAS STILL IN HIGH SCHOOL.  EA WAS PERCEIVED, AND ACCORDED A MARKET CAP THAT WAS THE ENVY OF THE GAMING WORLD AND MANY IN SILICON VALLEY.  WE WERE A FIRST STOP FOR VISITING POLITICIANS AND TOP RANKED ON ALL THE BEST-OF-THE-BEST LISTS.

BY 2007-2008 THE STORY WAS DIFFERENT.   WITH THE TRANSITION FROM XBOX AND PLAYSTATION 2 TO THE XBOX 360 AND PLAYSTATION 3, OUR PRODUCT QUALITY SUFFERED. OUR DEVELOPMENT COSTS SKYROCKETED.  WE HAD STOPPED GROWING. 

THE SECOND CHALLENGE WAS LURKING JUST AROUND THE CORNER.  THE WORLD WAS CHANGING – FAST.  AND THE INTERNET WAS ABOUT TO DO TO THE GAME INDUSTRY WHAT IT HAD DONE TO MUSIC, MOVIES AND NEWSPAPERS.  WE WERE FACING A WORLD GOING THROUGH UNBELIEVABLE CHANGE WITH THE RISE OF SMART PHONES, SOCIAL NETWORKS AND MOST RECENTLY, IPADS, EACH OF WHICH HAS TURNED OUT TO BE A PLATFORM WHERE GAMING IS THE NUMBER ONE APPLICATION.

IN THE CHURN OF ALL THIS INDUSTRY CHANGE, EA FOUND ITSELF ON THE WRONG END OF THE KIND OF TECHNOLOGY TRANSFORMATION THAT FELLED BLOCKBUSTER, A FEW OF THE MAJOR MUSIC LABELS AND WANG. 

OUR PROFITS WERE IN RAPID DECLINE….BEFORE THEY WENT ENTIRELY NEGATIVE.

FOUR YEARS AGO, I HELD A MEETING AND TOLD EMPLOYEES THAT WE WERE IN A DO OR DIE SITUATION.  WE WERE FAILING.  WE COULD INVEST AND RETOOL FOR RADICAL CHANGE – OR WE COULD ACCEPT A SHRINKING SHARE OF A SHRINKING PIE…..AND EVENTUALLY DIE.

IN ORDER TO SUCCEED, WE WOULD HAVE TO FUNDAMENTALLY CHANGE HOW EA CREATES, MARKETS, PUBLISHES AND MONTIZES GAME CONTENT.  WE NEEDED TO CHANGE MADDEN NFL, FROM A THING THAT YOU BUY FOR A SINGLE GAME CONSOLE….TO A PLACE THAT YOU GO WITH YOUR SMART PHONE, YOUR SOCIAL NETWORK AND YOUR TRUSTY XBOX.

WE REALIZED WE NEEDED TO DRAMATICALLY INCREASE OUR GAME QUALITY TO EARN BACK THE TRUST OF OUR CONSUMERS.

WE KNEW WE NEEDED TO MOVE EA BEYOND ITS CORE STRENGTH IN GAMES SOLD AT RETAIL, AND PUSH HEADLONG INTO THE NEW WORLD OF CONNECTED DEVICES, SMART PHONES AND SOCIAL NETWORKS.

FOR THE FIRST TIME IN OUR COMPANY’S HISTORY WE HAD TO DRAMATICALLY CUT COSTS AND PERSONNEL – THIS WAS A HUGE CHALLENGE TO PLAN AND EXECUTE….. AND FRANKLY A HUGE CHALLENGE TO OUR CULTURE.

WE KNEW THAT SOME EMPLOYEES WOULD SURVIVE THE CHANGE….OTHERS WOULDN’T.

WE KNEW IT WOULD BE HARD……BUT WE HAD NO IDEA HOW HARD.

WE KNEW THE ENORMOUS INVESTMENTS WOULD BE UNSETTLING TO INVESTORS….AND THAT THE RETURN WOULD BE A LONG WAY OFF. 

PERHAPS MOST PAINFULLY – WE HAD TO DO THESE THREE HARD THINGS WHILE THE PRESS AND MANY FINANCIAL ANALYSTS TOLD US WE WERE CRAZY – THAT THE CUTTING WE WERE DOING WAS GREAT, BUT THAT THE INVESTMENT IN DIGITAL WAS JUST NOT A GOOD IDEA.  IT PROVED VERY HARD TO HEAR THE NEGATIVE DRUMBEAT FROM OUT THERE IN PUBLIC WHILE TACKLING VERY HARD CHALLENGES AT WORK.

I LOST A FEW FRIENDS IN THIS PROCESS – SMART, CREATIVE PEOPLE, WHO JUST COULDN’T STOMACH THE TRANSITION.  SOME STOPPED BELIEVING. SOME LEFT FOR WHAT THEY THOUGHT WERE BETTER OFFERS WITH A QUICKER PAYOUT.

BUT I’M SURPRISED AND HEARTENED BY HOW MANY HAVE STAYED.

I AM MOST SURPRISED BY …  HOW MANY HAD FAITH……………. WHEN FAITH WAS ALL WE HAD. 

I WISH I COULD TELL YOU THAT IT’S ALL PAID OFF – THAT, LIKE HARRY TRUMAN, STEVE JOBS AND JOHN CHAMBERS, WE’VE BEEN FULLY VINDICATED. 

NOT YET. YES, WE’VE HAD A FEW WINS….BUT THERE IS MUCH MORE TO DO.

WE’RE PROUD THAT OUR GAME QUALITY IS UP, OUR COSTS DOWN, AND PROFITS UP.  AND, THAT THE INVESTMENTS ON THE NOTION WE COULD BUILD A GAME BUSINESS BEYOND SIMPLY PACKAGED GOODS IS WORKING.  WE’RE HAPPY THAT WALLSTREET IS STARTING TO RESPOND.

BUT I’M NOT PUTTING ON A FLIGHT SUIT AND TELLING MY SHAREHOLDERS “MISSION ACCOMPLISHED.” 

THAT WOULD BE “ATTITUDE”.

SO WHILE THE LESSON ISN’T OVER, WE’VE LEARNED A LOT. 

WE COULD HAVE COMPROMISED WITH THE PRESS AND SOME FINANCIAL ANALYSTS AND NOT GONE THROUGH WITH THE INVESTMENTS IN NEW BUSINESSES WHILE WE WERE CUTTING IN THE OLD BUSINESS OUR COMPANY WAS FOUNDED ON.  WE COULD HAVE MADE EXCUSES.  WE COULD HAVE DONE WHAT SO MANY DO IN THESE SITUATIONS.  WE COULD HAVE QUIT AND FOUND ANOTHER CHALLENGE IN ANOTHER PLACE.

WE DIDN’T.  WE STUCK WITH IT.  LEARNED LIFELONG LESSONS AND MADE LIFETIME FRIENDS. 

I WOULD ARGUE …. WE FAILED WELL.

WE WERE STUDENTS OF OUR OWN FAILURE.  WE USED OUR FAILURE TO SHAPE AND IMPEL US TO A BETTER STRATEGY – ONE THAT WE BELIEVE WILL ULTIMATELY SUCCEED IN WAYS THAT OUR PREVIOUS STRATEGY, EVEN IF PERFECTLY EXECUTED, COULD NOT HAVE.

I AM TEMPTED TO MAKE A CLEVER ANALOGY HERE – SOMETHING ABOUT STICKING WITH A DIFFICULT VIDEO GAME AND REALIZING THE SATISFACTION THAT COMES FROM TAKING DOWN ALL THE BOSSES.  BUT, THIS UNDERSELLS THE POINT.

SO LET ME UNDERLINE THE POINT CLEARLY – THE SETBACKS YOU WILL FACE IN YOUR BUSINESS CAREER WILL FEEL FAR MORE WRENCHING THAN YOU CAN IMAGINE.  THE MOST PROFOUND PROFESSIONAL LOSSES – AND YOU ARE SURE TO EXPERIENCE THEM….WILL FEEL LIKE PERSONAL TRIALS AND FAILURES….AND THESE FAILURES WILL PLAY ACROSS YOUR ENTIRE NETWORKS, VISIBLE TO YOUR COLLEAGUES, FRIENDS AND FAMILY.  IT IS HOW YOU DEAL WITH THESE FAILURES THAT ARE MOST LIKELY TO DEFINE YOUR CAREERS. 

EVERY ONE OF YOU HERE TODAY IS SMART, MOTIVATED, AND WELL-EDUCATED.  YOU’VE GOT EVERY REASON TO ASSUME YOU’LL BE SUCCESSFUL.

BUT HOW YOU SUCCEED………WILL VERY LIKELY BE DETERMINED BY HOW YOU FAIL.

THERE WILL BE LOSSES.

THERE WILL BE EMBARASSMENTS.

THERE WILL BE PAIN.

AND THERE WILL BE ACHINGLY LONG PERIODS WHEN VERY FEW PEOPLE BELIEVE IN YOU.

WHAT HAPPENS NEXT – TURNAROUND OR EARLY RETIREMENT -- WILL BE DETERMINED BY HOW YOU HANDLE ADVERSITY.      

THE HAAS SCHOOL OF BUSINESS HAS PREPARED YOU FOR MANY THINGS – SPREADSHEETS, MERGERS, ACQUISITIONS, LABOR NEGOTIATIONS….. PERSONALLY, I THINK THE BEST PREPARATION YOU’VE BEEN GIVEN ARE THE SENTENCES RIGHT HERE…..THIS LITTLE LAMINATED CARD THAT YOU CAN PULL OUT OF YOUR WALLET WHENEVER YOU GET KNOCKED ON YOUR ASS.

TRUST ME….SOONER OR LATER YOU’RE GOING TO GET KNOCKED ON YOUR ASS.  WILL YOU FOLD?  OR WILL YOU FAIL WELL?

THANKS FOR LISTENING.  CONGRATULATIONS. GOOD LUCK, AND I MEAN THIS SINCERELY….

FAIL WELL.